Spring of hope for Persimmon as builder’s annual profits leap

The York-based builder, which owns the Charles Church and Westbury Partnerships brands, lifted underlying pre-tax profits to £95.5m in 2010 from £7m in 2009.

The group said trading in the first eight weeks of the year has been “encouraging”, with visitor numbers up 10 per cent.

Pricing remains stable, added Persimmon, and cancellation rates of 16 per cent are at historically low levels. It has already achieved sales of £848m so far this year.

But the builder warned of “significant challenges ahead” while mortgage approvals remain at low rates.

Figures from the Bank of England yesterday showed mortgage lending bounced back during January, recovering some of the ground it lost due to severe weather in December. Net lending, which strips out redemptions and repayments, rose to £1.8bn, its highest level for a year, said the Bank.

There was also a seven per cent rise in mortgage approvals to 45,723. However, these remain well down on the 70,000 to 80,000 approvals a month considered to be consistent with a stable housing market – and are less than half the 100,000 approvals a month seen during the credit boom.

Outgoing chairman John White said: “Despite a continuing low level of mortgage approvals, the group is achieving improving returns and remains well positioned for the upturn in the housing market when it occurs.”

Revenues were 10.5 per cent higher at £1.57bn and the group’s underlying operating margin more than doubled to 8.2 per cent.

Persimmon’s total house sales increased 4.5 per cent to 9,384 legal completions, although the south again proved stronger than the “more difficult” north.

Sales in its northern region were broadly flat at 2,145, while its average sales price there increased five per cent to £154,104.

Within this, sales in Yorkshire increased by six to 504, and the average sales price there surged eight per cent to £162,321.

The group’s shift away from building apartments helped drive the increased profitability and average house prices, with Yorkshire projects at Driffield, Easingwold and North Hykeham all featuring more family houses.

“In the circumstances it’s a good result,” said north division chief executive Jeff Fairburn. “The main factor remains mortgages and the availability of mortgages, and whilst the affordability is there, for first-time buyers the issue is one of deposits.”

Mr Fairburn said he is “encouraged” by more products becoming available for first-time buyers, such as state-owned Northern Rock’s announcement this week it is to resume 90 per cent loan to value mortgages.

“It would be nice to see more higher loan to value products,” he said. “ It’s just getting that balance right. I think there might be more products becoming available on the mortgage market. It will make the market more accessible to people.”

He said the group expects to make further progress this year, and chief executive Mike Farley added he was comfortable with analysts’ consensus forecast of margins at nine per cent this year.

“We don’t expect to see big volume improvement but we will continue to see further movement in terms of price,” said Mr Fairburn.

The company has reduced net debt to £51m from £1.2bn at its peak, and Persimmon recommended a final dividend of 4.5p per share, bringing the total dividend to 7.5p per share after resuming payouts last summer.

It had committed facilities of £458m as of the start of the month. Mr Fairburn said while this leaves scope for acquisitions, “that’s not something we are looking at at the moment”.

But shares in the group slid 3.9 per cent yesterday to close down 18.5p at 451.9p.

Persimmon said it expects to open 70 sites by July, maintaining 380 active developments across the UK.

It had a land bank of 58,862 plots at the end of December, equivalent to about 6.3 years’ supply at current levels. The group plans to gradually reduce its land supply to improve return on capital.

About half its land has been acquired in southern regions. Persimmon retained a £250m provision taken against its land bank during the financial crisis.

Mr Fairburn said this gives the group “reasonable cover on the balance sheet”, allowing for potential pressure on prices.

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